NEWS & SOLUTIONS

Tracking the state-by-state progress of electricity deregulation, and analyzing what impact it will have on the supermarket industry, tops the list of executives' energy priorities.Although deregulation of the nation's $208 billion electric power industry is expected to lower retailers' electric bills -- their highest operations cost next to labor -- its effects won't be felt equally in all parts

Tracking the state-by-state progress of electricity deregulation, and analyzing what impact it will have on the supermarket industry, tops the list of executives' energy priorities.

Although deregulation of the nation's $208 billion electric power industry is expected to lower retailers' electric bills -- their highest operations cost next to labor -- its effects won't be felt equally in all parts of the country.

Areas with high electric rates, such as the Northeast, the Northwest and California, may see rate reductions, but retailers in other areas fear rates could rise.

In addition, the prospect of buying power in a deregulated environment is putting new demands on supermarket energy managers. Besides the ongoing mandate to build and operate energy-efficient stores, retailers must now understand how, when and why they are using power, in order to take advantage of new electricity rate structures.

Retailers operating in states further along in the deregulation process, such as New York, Massachusetts and California, have already formulated plans to not only cut electric consumption but also to better understand how they consume electricity.

Supermarkets in states just beginning to explore deregulation are carefully observing its impact. They also are focusing on energy conservation efforts, and are exploring ways to reduce dependence on electric power if deregulation raises rates rather than lowers them.

"Ideally, we'd open up the electricity marketplace today," said Mike Lloyd, director of purchasing and energy, Wegmans Food Markets, Rochester, N.Y. "Our top priority is seeing that the restructuring process is expedited, because it works to our benefit and everyone's benefit."

Wegmans operates 54 supermarkets and 16 home centers, most within New York State, said Lloyd. "New York is a high-price state in terms of electric costs, so it's had trouble competing for business," he said. "But the [state] administration wants to see competition happen."

Shaw's Supermarkets, East Bridgewater, Mass., which operates stores in several New England states, has been collecting more detailed information about its power usage. "We've been using software to aggregate our loads and develop load profiles," said Kathleen Loftus, energy and regulatory affairs manager for Shaw's. "For example, meal solutions and other new types of store layouts are using more energy per square foot than stores had in the past."

Shaw's is also using submetering, measuring usage via six to 10 different electrical panels in stores. "This gives us a picture of which end users operate efficiently," said Loftus.

Information gathering is important, as the final shape of the deregulated market is still being determined by numerous legislative and regulatory bodies. "The best-case scenario for Shaw's would allow power suppliers to aggregate all our stores, and give us a good electrical rate because we're a good risk," said Loftus.

Multistate and multiregion operators face even more complex challenges. "As the industry deregulates, we want to be ahead of the curve," said Thomas Ryan, president of the Design Services Group of Supervalu, Minneapolis. "Because we serve 4,300 independent retailers, we should be able to aggregate loads and bring economies of scale to negotiated agreements."

Ryan added that he expects to see "significant deregulation by the turn of the century. It's a fast-moving target, so we want to learn more about it."

For Fleming Cos., Oklahoma City -- which operates corporately owned stores and distribution centers, as well as supplying retailers across the country -- deregulation's impact is difficult to measure.

"Some of our retailers pay a lot for electricity, some pay a little," said Ed Williams, director of store planning, Fleming. Deregulation may average out costs across the board. "Those paying 10 cents per kilowatt-hour may go down to 8 cents, but those paying 4 cents may go up to 6 cents," he said.

For this reason, Fleming is still evaluating whether aggregating stores' electricity purchases makes sense. "It may not save our retailers money," said Williams. However, in the deregulated environment, "if you don't buy electricity in large blocks, you may be at a competitive disadvantage."

Williams also is concerned that the promised savings from deregulation may have been overblown. "We were originally told deregulation would save us 10% to 15%," he said. "Now the numbers being kicked around are 5% to 7% savings."

Ken Zeinemann, director of corporate maintenance/services for Schultz Sav-O Stores, Sheboygan, Wis., said his chain is already aggregating store loads for electricity purchasing. "We haven't seen savings from this yet, but it has made the accounting simpler by having one bill for multiple stores," said Zeinemann.

"Deregulation is one of our greatest concerns," said Leonard Micek, manager of engineering at King Soopers, Denver. "It seems to be inevitable but the final result is questionable."

Micek's specific concern is that electric rates are currently low in Colorado, where King Soopers stores operate. "It's hard to see [that] they will go much lower," he said.

Even if rates do decrease, Micek is wary of increased confusion in the deregulated environment. "As with telecommunications deregulation, there were reductions in long-distance costs, but more bills and more paperwork to deal with. There's a question of whether the bottom line will make it worthwhile," said Micek.

David Noller, acting president of the Market Council on Retail Energy Development, Irvine, Calif., a new trade association designed to help multisite retailers operate in a deregulated environment, agreed that deregulation will bring new responsibilities to supermarket energy managers.

He explained that one way supermarkets will save is by buying electric power as a commodity. "But the characteristic of a commodity is that you have to tell the seller how much you want before you consume it," said Noller. "If you're buying flour and say 'I want three truckfuls at 11 a.m.,' and you actually use two truckfuls or four, there's a risk involved for the seller."

In order for supermarkets to save in a commodity market, "they must be able to forecast accurately. If you buy by the 'truckful,' you have to play by the commodity market's rules," said Noller.

He believes that a supermarket's ability to reduce risk -- that is, consume what it actually said it would consume -- represents savings opportunities just as substantial as the savings from lower electric rates.

Retailers in areas where deregulation is still a few years off are preparing for its impact.

"Our objective is always better utilization of our energy dollars," said Mark Rohrbach, store development manager for Clemens Markets, a 16-store chain based in Kulpsville, Pa. "We want to position ourselves to find savings in a deregulated market, without negative effects on service."

Rohrbach expressed interest in technologies that could lower a supermarket's dependence on electric power, such as natural-gas-driven refrigeration units. "They could be a great way to reduce electric demand, but we'd need to look at the cost of maintenance. The goal is to save every kilowatt you can, without spending the money elsewhere."

Fleming's Williams said the company has also considered natural-gas generation of electricity, which has the potential to cut electricity costs by as much as one-third.

Such a move would involve a long-term commitment due to the "significant cost of the equipment," said Williams. "However, in large stores located in states where natural gas is abundant, such as Texas or Oklahoma, it could make sense."